The Wall Street Journal reports that auditors have recovered nearly $700 million in Medicare overpayments to hospitals and other medical providers. Theo Francis writes,

Auditors have recovered nearly $700 million in Medicare overpayments to hospitals and other medical providers in a half-dozen states under a controversial program that pays the auditing firms a portion of amounts they identify.

The program has drawn fire from health-care providers, and hospitals in particular, who call it overly aggressive and too confrontational. But the federal Centers for Medicare and Medicaid Services has supported the move and is in the process of expanding it nationally.

In all, the agency's recovery audit contractor program caught $1.03 billion of improper payments over about three years, primarily in New York, California and Florida, about $992.7 million of which was overpayments by Medicare. The audits also identified about $38 million that providers should have received but didn't. (Three states were added toward the end of the trial program, but accounted for only a small part of the recoveries, Medicare officials said.)

The program's expenses amounted to about 20 cents on the dollar, including $187.2 million paid to the audit firms, and medical providers successfully challenged about $60 million of overpayments identified by the auditors. In the end, about $694 million has been returned to the Medicare trust funds, the Medicare agency said. The auditors reviewed a total of $317 billion in claims.

"All in all, we're very happy with the results," said Tim Hill, the agency's chief financial officer and director of its office of financial management. "It returned a lot of money to the trust fund, particularly when you think that we're talking about three states."

Mr. Hill pointed to the low appeal rate -- about 14% of overcharges were appealed, and 4.6% of the total were overturned -- as evidence that the audits succeeded. "We know that we got the right answer," he said.

Hospital groups lobbied vigorously early this year to scrap or scale down the program, calling the contingency fees a "'bounty hunter' payment mechanism."

Instead, CMS is modifying some aspects of the program, requiring the audit firms to use clinically trained personnel, to make sure they evaluate medical necessity consistently with the rest of the agency's operations, and to communicate more detail about their audits with medical providers. The agency is also adding staff to oversee the program and arranging for providers to be able to track the progress of audits.

Mr. Hill also noted that the auditors aren't paid if their decisions are overturned, and that they are paid on the same terms whether they find overpayments by Medicare to providers, or underpayments that have shortchanged medical providers, who are then made whole.